A recent conversation involved a structure that’s becoming increasingly common in property:
A recent conversation involved a structure that’s becoming increasingly common in property:
- a group structure with development and investment companies
- a separate SPV for a project
- ownership split between connected parties and external individuals
The question was:
“How do we extract the profits tax efficiently?”
The first thing to consider is:
What is each party actually being rewarded for?
Once that becomes clear, the tax treatment is often far easier to justify — commercially as well as technically.
A practical reality: most discussions happen too late
In reality, many of these conversations do not happen at the beginning of a project.
They happen once profit has appeared. That changes the position considerably.
Interest arrangements are generally strongest when agreed upfront. Trying to introduce them retrospectively — particularly several years later — can quickly become difficult to support commercially.
The same principle usually applies to management charges and remuneration arrangements introduced retrospectively.
The results must be commercially reasonable and technically defensible.
The cleanest structures are usually the ones agreed early and revisited periodically as projects evolve, funding changes and responsibilities shift.
Where that doesn’t happen, people often end up trying to retrofit logic onto an outcome that already exists.
That is where both technical risk and tension between shareholders tend to increase.
1. Start with capital
Before looking at profit extraction, deal with the funding properly.
If money is being introduced into the SPV — whether by shareholders, an investment company or connected parties — interest is often the cleanest first layer of return.
Why?
Because it directly reflects who funded the project and rewards them for the capital they contribute.
In summary:
- the SPV receives funding
- the funder receives a return
- profit is reduced before residual profit is shared between shareholders
Funding is often contributed in proportion to equity. But it does not have to be.
Different parties may bring different strengths, with one party contributing more capital and another more labour. That makes it even more important to structure withdrawals fairly and clearly from the outset.
Where structured properly from the beginning, interest is often one of the more straightforward and defensible mechanisms available.
However, the following factors still matter:
- rates need to be commercially supportable
- documentation needs to be in place
- when interest is paid to individuals, a company will normally need to deduct income tax at source
- company recipients need to consider the loan relationship rules
Generally, rewarding capital first tends to create a cleaner foundation for everything that follows.
2. Then consider contribution
Once capital has been dealt with appropriately, the next question becomes:
Who is actually doing the work?
This is where different forms of extraction often start to make sense for different parties.
Company contribution → management charges
Where a connected company is genuinely involved in:
- oversight
- project coordination
- financial management
- administration
- strategic input
…a management charge to the SPV may be entirely appropriate.
But the important point is that it needs to reflect reality.
The strongest management charges are usually:
- agreed in advance
- linked to actual activity
- commercially modest
- capable of being explained clearly to all shareholders
Once charges start looking purely outcome-driven, the position becomes harder to defend.
Particularly in smaller projects, restraint is often underrated.
Individual contribution → salary
Where individuals are actively involved in sourcing, managing or delivering the project, salary or director remuneration is often the cleaner route.
This tends to work better because it:
- reflects personal contribution directly
- avoids distorting profit allocation
- keeps the structure easier to understand
It also reduces the tendency for everything to be forced through management charges simply because a company exists somewhere within the structure.
Commercially, clarity matters just as much as tax efficiency.
3. Then consider pensions
Once capital and contribution are dealt with properly, pensions can sometimes become useful as an additional layer of extraction.
In the right circumstances, employer pension contributions can be both commercially reasonable and tax efficient.
They can also help rebalance outcomes where:
- one party is already benefiting from management charges
- others are primarily receiving salary or dividends
But again, the same principle applies:
the arrangement still needs to make sense commercially.
Large or uneven contributions introduced late in the process can easily start to look artificial if they are not supported by genuine involvement and remuneration logic.
4. Residual profit should follow equity
Only after:
1. capital has been rewarded
2. contribution has been recognised
3. pensions have been considered
…does the remaining profit become true residual equity return.
At that point, distributions following shareholding proportions tend to make far more sense.
In many structures, people instinctively start with dividends and then try to engineer adjustments afterwards.
In practice, things are often cleaner when approached in the opposite direction.
5. What this often looks like in reality
In smaller and mid-sized property projects, the numbers are not always large enough to justify aggressive restructuring after the event.
A balanced outcome is often the more robust one:
- modest management charges
- sensible remuneration
- reasonable pension planning
- acceptance that some profit remains for dividend distribution
Trying to eliminate every inefficiency retrospectively can sometimes create more risk than benefit.
Particularly where multiple shareholders are involved.
Final thought
Most problems in shared SPVs are not caused by the tax legislation itself.
They usually arise because too many different objectives are being pushed through one mechanism — often management charges introduced after profits already exist.
In reality, each layer serves a different purpose:
- capital needs rewarding
- work needs paying
- profit needs sharing
When those elements are separated clearly and approached in the right order, the overall structure tends to become calmer, cleaner and easier to defend.
And usually, easier for everyone involved to understand as well.
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